10b5-1 Trading Plans

A 10b5-1 plan is a pre-arranged, written schedule for buying or selling your employer stock. Its purpose: give insiders an affirmative defense against insider-trading allegations when they sell during a period where they might otherwise have had material non-public information (MNPI).

Who needs one

• Executive officers (C-suite, named execs in proxy filings) — effectively required to sell any material quantity of stock.
• Directors — same.
• 10% shareholders — Section 16 filers.
• Employees with access to MNPI (finance, legal, strategic roles with pre-release metrics visibility) — strongly recommended.
• Rank-and-file employees — optional, but useful for pre-commitment to a diversification plan (removes behavioral temptation to hold).

What the 2022-2023 SEC amendments changed

In December 2022, the SEC significantly tightened 10b5-1 rules. Key changes now in effect:

• Cooling-off periods. Directors and officers must wait the longer of (a) 90 days after plan adoption, or (b) 2 business days after the company files the 10-Q/10-K covering the quarter in which the plan was adopted — capped at 120 days. Non-executives: 30-day cooling-off.
• Only one active plan at a time (with limited exceptions for sell-to-cover or non-overlapping plans).
• Certification required. Directors and officers must certify at plan adoption that they're not aware of MNPI and are adopting the plan in good faith.
• Quarterly disclosure of plan adoptions and terminations in 10-Qs.
• No overlapping single-trade plans. Prior use of single-trade 10b5-1 plans to opportunistically sell just before bad news has been restricted.

How to design a 10b5-1 plan well

The plan specifies in advance: how many shares to sell, when, and at what price (or price conditions). Common structures:

• Fixed-dollar schedule. Sell $X of stock every month/quarter. Averages dollar-cost over time.
• Fixed-share schedule. Sell N shares every month/quarter. Same volume regardless of price — simpler operationally.
• Price-conditional. Sell N shares only if stock is above $X. Allows participation in upside but guarantees eventual diversification if price doesn't cooperate.
• RSU vest-coordinated. Sell a fixed percentage of each RSU vest within a set window. Common for executives building diversification without committing specific volumes.

Dimensions to think about

• Duration. Most plans run 12–24 months. Longer = more flexibility to smooth through news cycles.
• Total volume. Too small = not meaningful diversification. Too large = you're locked into selling more than you may later want.
• Start date. Cooling-off period runs from adoption date; design your target first-sale date and back up from there.
• Termination conditions. Termination before plan completion (after SEC changes) can invalidate the affirmative defense. Plans should be designed to complete.
• Tax coordination. If you also have unrelated ISO exercises or unvesting events, schedule plan trades around them.

A realistic example

Common mistakes

• Adopting a plan during a quarterly blackout. Plan adoption itself must happen during an open trading window. Don't sign during blackout thinking the cooling-off period fixes it.
• Treating the plan as advisory. The whole point is commitment. You can't "override" the plan when you change your mind — that voids the defense.
• Not coordinating with tax planning. Large coordinated sales in the same year as ISO exercises can stack AMT inappropriately.
• Setting start dates too aggressively. Not allowing enough cooling-off buffer around earnings releases.